Consolidation Corner

In Search Of: Guidance for Locating Missing Participants

Posted by Thomas Hawkins on Oct 25, 2017 2:33:48 PM



Two weeks ago, I authored an article applauding the American Benefits Council for their October 2nd, 2017 letter to the Department of Labor (DOL), which clearly identified the root causes of missing participants: a highly-mobile workforce and a lack of retirement savings portability. Extending the Council’s insight, I maintained that what’s really “missing” in our defined contribution system are initiatives that move retirement savings forward when participants change jobs, such as auto portability. When implemented, these initiatives could serve to dramatically decrease the overall incidence of missing participants.

 

Meanwhile, as a practical matter, fiduciaries of ongoing plans must still confront the problem of locating missing participants, and must do so with incomplete guidance. If audited, they’ll potentially face “ad hoc” enforcement positions by the DOL, which the Council asserts have been inconsistent and, in many cases, unreasonable.

 

This article focuses on the Council’s specific recommendations to the DOL as set forth in their letter. The Council’s recommendations, if adopted, could establish a more complete, consistent and reasonable framework for plans to address the missing participant problem, going forward.

 

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Topics: Auto Portability, Automatic Rollovers, 401(k) Consolidation, In-Plan Consolidation, America's Mobile Workforce, Auto Enrollment, Retirement Plan Portability, Automatic Rollover, Missing Participant IRA

Bringing Clarity to the Murky Problem of Missing Participants

Posted by Thomas Hawkins on Oct 13, 2017 4:02:45 PM

 

On October 2
nd, 2017, the American Benefits Council delivered a letter to the Department of Labor (DoL), urging the DoL to act on the problem of unresponsive or missing participants, an issue that has proven to be a significant point-of-pain for plan sponsors.

 

The central focus of the Council’s letter is the need for comprehensive and consistent guidance for plan sponsors in locating missing participants, a critical process that’s necessary to satisfy the DoL’s goal of ensuring that all participants receive their retirement benefits. 

 

In seeking clarity and consistency, the Council seems to have hit their mark, laying out a series of recommendations for an adaptive framework, based on the lifecycle of terminated, vested employees that includes the periods before, just prior to, and following distribution events.  

 

If adopted, the recommendations would supply desperately needed direction to fiduciaries of ongoing retirement plans, as well as providing a predictable framework for the DoL’s enforcement actions.

 

What’s Missing: A Strategic Solution for Missing Participants

 

As importantly, a careful read of the letter indicates the Council also grasps the larger dynamics of the missing participant problem, correctly identifying its underlying root causes. 

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Topics: Auto Portability, Automatic Rollovers, 401(k) Consolidation, In-Plan Consolidation, Cash Outs, Leakage, America's Mobile Workforce, Auto Enrollment, Retirement Plan Portability, Automatic Rollover, PSCA, Stale Dated Checks, 401k leakage, EBRI

The Explosion of Small 401(k) Accounts

Posted by Thomas Hawkins on Sep 18, 2017 4:28:54 PM

 

It’s generally accepted that the small-balance accounts of terminated 401(k) plan participants have been a problem for plan sponsors, resulting in increased plan costs, fiduciary risk and other ancillary problems, such as missing participants and uncashed distribution checks.

Now, based on new information from EBRI and other sources, we’re learning that small accounts are a large and growing problem for active participants as well.

If no action is taken to make retirement savings more portable, an increasingly mobile workforce will ensure that this collective “explosion” in small accounts will exacerbate headaches for plan sponsors. For participants with small accounts, research indicates that bad outcomes will only worsen as they leave savings behind or cash out entirely.

Looking Back: The Impact of Public Policy on Small Accounts

The problem of small accounts -- for both terminated and active participants – didn’t happen overnight, and has been influenced over many years by public policy, resulting in a decidedly mixed bag of outcomes. 

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Topics: Auto Portability, Automatic Rollovers, 401(k) Consolidation, In-Plan Consolidation, Cash Outs, Leakage, America's Mobile Workforce, Auto Enrollment, Retirement Plan Portability, Automatic Rollover, PSCA, Stale Dated Checks, 401k leakage, EBRI

New EBRI Research Finds $2T Saved From Automated Portability

Posted by Neal Ringquist on Apr 19, 2017 8:05:00 AM

As much as $2 trillion could be retained in the U.S. retirement systems if Auto Portability were fully implemented, according to new research by the Employee Benefit Research Institute (EBRI). The research establishes Auto Portability as a leading retirement industry public policy initiative, placing it ahead of auto IRA initiatives and just behind universal DC coverage in terms of impact on total retirement savings shortfall.

 

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Topics: Auto Portability, 401(k) Consolidation, Auto Enrollment, Automatic Rollover

The Stealth Solution to America’s Retirement Savings Crisis

Posted by Neal Ringquist on Mar 14, 2017 8:30:00 AM

 

Over the past year, the Department of Labor’s Fiduciary Rule has been highly-visible, presenting major ramifications for the retirement industry and looming large on the radar screens of retirement services providers.  

 

The underlying rationale for the rule, as stated by the Obama administration in an April 6, 2016 press briefing, was to save retirement investors $17 billion per year in lost retirement savings that result from conflicts of interest in retirement advice. Certainly, anything that protects $17 billion in retirement savings is a worthy goal, if it helps more Americans meet their retirement income needs.

 

However, there’s a larger hole in our retirement system – cash-out leakage – that inflicts far greater harm to American retirement savers, yet this threat continues to fly beneath our collective radar.   

 

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Topics: Auto Portability, Mandatory Distributions, Automatic Rollovers, 401(k) Consolidation, Cash Outs, Auto Enrollment, Automatic Rollover

Incubate Small Retirement Accounts, Don’t Throw Them Away

Posted by Neal Ringquist on Feb 16, 2017 11:30:00 AM

 

On February 3rd, the U.S. Chamber of Commerce, the world’s largest business federation representing the interests of more than 3 million businesses, released Securing America’s Retirement, their legislative roadmap aimed at strengthening the U.S. retirement system.

 

The Chamber’s goals are admirable:

“To address the needs of our nation’s shifting workforce, reduce barriers small businesses face in developing retirement plans, and make it easier for all Americans to save for their future…” 

 

The roadmap details policy solution proposals that Congress can act upon to achieve better retirement security for workers in the small business sector.  Improving retirement security for the small business sector is sorely-needed, as only 14% of companies with less than 100 employees – representing 34% of private sector payrolls -- offer their employees access to a retirement plan.  

 

In general, the majority of the Chamber’s agenda should be well-received, and appears to be well-vetted.  However, one policy proposal – increasing the mandatory cash-out limit to $10,000 – could have significant, unintended and adverse consequences for retirement security, if implemented without additional safeguards. 

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Topics: Auto Portability, Mandatory Distributions, Automatic Rollovers, 401(k) Consolidation, Cash Outs, Auto Enrollment, Automatic Rollover

How Auto Portability Will Bridge the Minority 401(k) Participation Gap

Posted by Thomas Hawkins on Dec 27, 2016 8:30:00 AM

Under-participation by minorities in America’s 401(k) system represents a significant economic disparity that requires creative, private-sector solutions.

Auto portability – an emerging plan feature that automatically moves small balance accounts forward when participants change jobs – could play a critical role in helping to bridge the participation gap.

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Topics: Auto Portability, 401(k) Consolidation, Leakage, Auto Enrollment

Auto Enrollment: The Unintended Consequences, Part II

Posted by Thomas Hawkins on Jan 4, 2016 11:35:57 AM

 

In his December 1, 2015 article (The unintended consequence of 401(k) auto-enrollment), RCH CEO Spencer Williams exposes the linkage between auto enrollment and lower average account balances.  Based on Form 5500 data, Williams’ analysis presents some excellent examples of industries where average balances are significantly lower in plans that have adopted auto enrollment compared to plans that haven’t. 

 

Expanding on Williams’ analysis a bit, could we also expect to find a link between auto enrollment and greater numbers of separated participants?  It seems plausible: auto enrollment increases plan participation levels (a good thing), and if workforce mobility remains constant, then we’d expect to see rising levels of separated participants (a not-so-good thing).

 

Why should that matter?  A proliferation of separated participants drives increased plan costs, leads to higher levels of cash-outs and leakage, along with more missing participants and stranded, unconsolidated accounts.  Consequently, some plans may say “no thanks” and avoid auto enrollment altogether, despite its many favorable attributes.

 

So we looked deeper into the data, and that’s exactly what we found in one industry that we examined.  

 

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Topics: Auto Portability, Automatic Rollovers, Managed Portability, Roll-In, Lifetime Plan Participation, Auto Enrollment

The checklist you need to manage multiple retirement accounts

Posted by Neal Ringquist on Dec 16, 2015 4:13:59 PM

Marketwatch Logo

In his December 16th, 2015 article in MarketWatch, RCH’s CEO Spencer Williams offers a year-end checklist for those retirement savers who’ve elected to leave qualified retirement savings accounts behind with their former employers.

 

Williams maintains that multi-account retirement savers must maintain a level of vigilance to ensure that they keep tabs on these accounts, including:

  1. Monitoring merger and acquisition activity, which can lead to plan consolidation and significant changes to plan features.
  2. Determining if there are any other major plan changes (ex. – new recordkeeper, new fees, new investments, etc.)
  3. Ensuring that annual reports are still being mailed & received at your present address.  These reports should be reviewed to ensure that there are no significant changes.

 

If the list above sounds onerous, then you should consider consolidating your old accounts into your current employer’s plan.  The all-too-common assumption that most people make – that it’s easier just to leave these accounts behind – is often false!

 

Read the MarketWatch article here.

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Topics: Auto Portability, MarketWatch, Cash Outs, Lifetime Plan Participation, Auto Enrollment

As 401(k) Cash Out Leakage Grows, So Does Need for Auto Portability

Posted by Neal Ringquist on Dec 15, 2015 11:32:38 AM

In his December 11th article in BenefitsPro (Addressing the Critical Problem of 401(k) Cash Outs), Nick Thornton draws much-needed attention to the magnitude of the 401(k) cash out leakage issue, due to the frictions associated with account portability when plan participants switch jobs. Thornton’s article rightly emphasizes the need for automated portability – similar to automatic enrollment and deferral increases - to effectively address the cash out problem. 

 

Let’s examine the leakage problem in more detail.

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Topics: Auto Portability, Cash Outs, Lifetime Plan Participation, Leakage, America's Mobile Workforce, Auto Enrollment, Boston Research Technologies

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